Poor bureaucracy, low compliance holding back tax collection efforts

Urip Hudiono, The Jakarta Post, Jakarta

If there are hotter seats in the government than the tax service, there can't be many of them.

While expectations have been high, the tax office's efforts to collect tax revenue have been constantly hampered by a combination of poor bureaucracy, low compliance and rising demands for tax incentives, the Finance Ministry's Director General for Taxation, Darmin Nasution, said Monday.

But he said the tax office would nevertheless continue improving its performance, particularly after failing to meet its half-year collection target.

Total tax revenue collected until the end of June only reached Rp 166.77 trillion (US$18.5 billion), data from the ministry showed, significantly lower than its target of Rp 199.68 trillion.

The government also lowered its total tax revenue target to Rp 489.9 trillion for the 2007 budget revision. That figure is only 13.8 percent of gross domestic product (GDP), down from its earlier target of Rp 509.5 trillion, or 14.4 percent of GDP.

"Of course we want to increase tax collection, but we probably can't run as fast at doing so for the time being," Darmin said at a public discussion on problems hampering tax collection.

He said that among initial efforts to boost the tax take was the listing and assessment of the 200 largest taxpayers at each tax office throughout the country. These included industries in the commodities sector such as crude palm oil, which has recently enjoyed a boom caused by rising demand in the global market.

But Darmin said it turned out the tax office lacked data on earlier tax collection with which they could make comparisons, leading to difficulties with enforcing compliance.

"We spent a lot of time fixing up internal administrative system matters which (we had) thought were ready," Darmin said.

"The tax office's information system has improved, but past tax collection records turned out to have not been properly documented. There was also a lack of standard operating procedures for collecting taxes and supervising them."

The tax office plans to summon 17 large palm oil producers, after finding indications that 90 percent of the country's 600 producers had underpaid their taxes.

Darmin also said efforts to add more taxpayers, particularly from medium and small business, were hampered by low compliance and complicated tax filing procedures. He said the tax office planned to introduce more simple procedures next year.

Economist Faisal Basri from the University of Indonesia said low tax compliance could be due to public perceptions that the government's tax and economic policies were unfair.

"How can we expect more tax revenue if the government hasn't actually resolved the past (1997 East Asian) economic crisis by creating more quality growth?" he asked.

"The costs of the crisis are still being borne by taxpayers. Focusing more on the service and financial sectors has also created less tax revenue than manufacturing, which would have resulted in more actual growth and employment."

Faisal, who also heads the economic team of the Indonesian Chamber of Commerce and Industry, suggested the government lower its corporate tax rate to between 10 and 20 percent -- down from the current rate of 27 percent -- to stimulate higher compliance.
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